<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


(Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1998
                               -------------------------------------------
                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the transition period from _____________________ to ______________________

                               _____________________

For Quarter Ended September 30, 1998               Commission File No. 0-21444


                             AFG Investment Trust C
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Delaware                                            04-3157232
-------------------------------                     --------------------------
(State or other jurisdiction of                     (IRS Employer
incorporation or organization)                      Identification No.)

88 Broad Street, Boston, MA                         02110
-------------------------------                     --------------------------
(Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code     (617) 854-5800
                                                    --------------------------

______________________________________________________________________________
 (Former name, former address and former fiscal year, if changed since last
report.)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No______
                                             ---
              APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes_____ No______


<PAGE>


                             AFG Investment Trust C

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>

PART I.  FINANCIAL INFORMATION:

    Item 1.   Financial Statements

      Statement of Financial Position
        at September 30, 1998 and December 31, 1997                                      3

      Statement of Operations
        for the three and nine months ended September 30, 1998 and 1997                  4

      Statement of Cash Flows
        for the nine months ended September 30, 1998 and 1997                            5

      Notes to the Financial Statements                                               6-12


    Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations                                    13-19


PART II.  OTHER INFORMATION:

    Items 1 - 6                                                                         20
</TABLE>


                                        2

<PAGE>




                             AFG Investment Trust C

                         STATEMENT OF FINANCIAL POSITION
                    September 30, 1998 and December 31, 1997

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                 September 30,         December 31,
                                                                                     1998                  1997
                                                                               -----------------   -------------------
<S>                                                                            <C>                 <C>
ASSETS

Cash and cash equivalents                                                      $      15,466,768    $       8,843,640
Restricted cash                                                                        4,872,527            9,566,189
Rents receivable                                                                         197,681              819,736
Accounts receivable - affiliate                                                          734,115              904,426
Equipment at cost, net of accumulated depreciation
   of $47,484,876 and $50,635,609 at September 30, 1998
   and December 31, 1997, respectively                                                52,257,538           61,902,787
                                                                               -----------------    -----------------

          Total assets                                                         $      73,528,629    $      82,036,778
                                                                               -----------------    -----------------
                                                                               -----------------    -----------------

LIABILITIES AND PARTICIPANTS' CAPITAL

Notes payable                                                                  $      36,152,303    $      39,928,173
Accrued interest                                                                         310,182              240,434
Accrued liabilities                                                                      153,000               11,550
Accrued liabilities - affiliate                                                           84,531              118,703
Deferred rental income                                                                   185,320              126,942
Cash distributions payable to participants                                               399,297              451,804
                                                                               -----------------    -----------------

          Total liabilities                                                           37,284,633           40,877,606
                                                                               -----------------    -----------------

Participants' capital (deficit):
   Managing Trustee                                                                        6,439             (123,674)
   Special Beneficiary                                                                    53,123           (1,000,794)
   Class A Beneficiary Interests (1,787,153 and 1,792,353 Interests
     at September 30, 1998 and December 31, 1997, respectively,
     initial purchase price of $25 each)                                              29,663,494           30,858,790
   Class B Beneficiary Interests (3,024,740 Interests;
     initial purchase price of $5 each)                                                8,859,307           13,716,417
   Treasury Interests (223,861 and 218,661 Interests
     at September 30, 1998 and December 31, 1997,
     respectively, at Cost)                                                           (2,338,367)          (2,291,567)
                                                                               -----------------    -----------------

          Total participants' capital                                                 36,243,996           41,159,172
                                                                               -----------------    -----------------

          Total liabilities and participants' capital                          $      73,528,629    $      82,036,778
                                                                               -----------------    -----------------
                                                                               -----------------    -----------------
</TABLE>

                  The accompanying notes are an integral part
                         of these financial statements.


                                       3


<PAGE>

                             AFG Investment Trust C

                             STATEMENT OF OPERATIONS
         for the three and nine months ended September 30, 1998 and 1997

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               Three Months                          Nine Months
                                                            Ended September 30,                  Ended September 30,
                                                         1998              1997               1998               1997
                                                   ---------------    ---------------   ----------------   ----------------
<S>                                                <C>                <C>               <C>                <C>
Income:

    Lease revenue                                   $     3,764,697    $     3,875,875   $    11,944,029     $   11,933,449

    Interest income                                         272,239            321,611           831,683            730,878

    Gain (loss) on sale/exchange
    of equipment                                            (61,062)          (567,125)        2,004,922           (356,822)
                                                    ---------------    ---------------   ---------------     --------------

         Total income                                     3,975,874          3,630,361        14,780,634         12,307,505
                                                    ---------------    ---------------   ---------------     --------------


Expenses:

    Depreciation and amortization                         2,121,864          3,276,517         7,663,488          9,710,932

    Interest expense                                        750,573            284,830         2,370,131            886,502

    Equipment management fees
      - affiliate                                           165,098            168,713           517,421            505,854

    Operating expenses - affiliate                          216,975            258,492           544,762            486,986
                                                    ---------------    ---------------   ---------------     --------------

         Total expenses                                   3,254,510          3,988,552        11,095,802         11,590,274
                                                    ---------------    ---------------   ---------------     --------------


Net income (loss)                                   $       721,364    $      (358,191)  $     3,684,832     $      717,231
                                                    ---------------    ---------------   ---------------     --------------
                                                    ---------------    ---------------   ---------------     --------------

Net income (loss)
   per Class A Beneficiary Interest                 $         0.04     $            --   $         0.56      $         0.32
                                                    ---------------    ---------------   ---------------     --------------
                                                    ---------------    ---------------   ---------------     --------------

   per Class B Beneficiary Interest                 $         0.17     $         (0.12)  $         0.38      $        (0.12)
                                                    ---------------    ---------------   ---------------     --------------
                                                    ---------------    ---------------   ---------------     --------------

Cash distributions declared
   per Class A Beneficiary Interest                 $         0.41     $         1.73    $         1.23      $         2.55
                                                    ---------------    ---------------   ---------------     --------------
                                                    ---------------    ---------------   ---------------     --------------

   per Class B Beneficiary Interest                 $         1.65     $          0.13   $         1.98      $         0.13
                                                    ---------------    ---------------   ---------------     --------------
                                                    ---------------    ---------------   ---------------     --------------
</TABLE>

                  The accompanying notes are an integral part
                         of these financial statements.


                                       4



<PAGE>

                             AFG Investment Trust C

                             STATEMENT OF CASH FLOWS
              for the nine months ended September 30, 1998 and 1997

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       1998                  1997
                                                                                   --------------        ---------------
<S>                                                                                <C>                   <C>
Cash flows from (used in) operating activities:
Net income                                                                          $    3,684,832        $      717,231

Adjustments to reconcile net income to net cash from operating activities:
        Depreciation and amortization                                                    7,663,488             9,710,932
        (Gain) loss on sale/exchange of equipment                                       (2,004,922)              356,822

Changes in assets and liabilities 
    Decrease in:
        rents receivable                                                                   622,055             1,113,749
        accounts receivable - affiliate                                                    170,311             5,808,075
    Increase (decrease) in:                                                                 
        accrued interest                                                                    69,748               (40,150)
        accrued liabilities                                                                141,450                (1,485)
        accrued liabilities - affiliate                                                    (34,172)             (109,917)
        deferred rental income                                                              58,378               (51,563)
                                                                                ------------------    ------------------
             Net cash from operating activities                                         10,371,168            17,503,694
                                                                                ------------------    ------------------

Cash flows from (used in) investing activities:
    Purchase of equipment                                                                       --           (38,887,683)
    Proceeds from equipment sales                                                        3,986,683               778,820
                                                                                ------------------    ------------------
             Net cash from (used in) investing activities                                3,986,683           (38,108,863)
                                                                                ------------------    ------------------

Cash flows from (used in) financing activities:
    Proceeds from capital contributions                                                         --            15,123,700
    Payment of offering costs                                                                   --              (151,237)
    Restricted cash                                                                      4,693,662                    --
    Purchase of Treasury Interests                                                         (46,800)                   --
    Proceeds from notes payable                                                                 --            31,951,256
    Principal payments - notes payable                                                  (3,775,870)           (7,118,876)
    Distributions paid                                                                  (8,605,715)           (5,947,703)
                                                                                ------------------    ------------------
             Net cash from (used in) financing activities                               (7,734,723)           33,857,140
                                                                                ------------------    ------------------

Net increase in cash and cash equivalents                                                6,623,128            13,251,971

Cash and cash equivalents at beginning of period                                         8,843,640            10,634,493
                                                                                ------------------    ------------------

Cash and cash equivalents at end of period                                          $   15,466,768        $   23,886,464
                                                                                ------------------    ------------------
                                                                                ------------------    ------------------

Supplemental disclosure of cash flow information:
      Cash paid during the period for interest                                      $    2,300,383        $      926,652
                                                                                ------------------    ------------------
                                                                                ------------------    ------------------

Supplemental disclosure of cash flow information:
   See Note 4 to the financial statements herein.
</TABLE>

                  The accompanying notes are an integral part
                         of these financial statements.


                                       5



<PAGE>




                             AFG Investment Trust C

                        Notes to the Financial Statements
                               September 30, 1998

                                   (Unaudited)


NOTE 1 - BASIS OF PRESENTATION

     The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1997 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1997 Annual Report.

     In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1998 and December 31, 1997 and results of operations
for the three and nine months ended September 30, 1998 and 1997 have been made
and are reflected.

NOTE 2 - CASH

     At September 30, 1998, the Trust had $19,216,178 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities. Such cash includes $4,872,527 which
is classified as Restricted Cash and represents the remaining net proceeds
realized from the offering of the Class B Interests less (i) the portion
thereof used to pay a special distribution to the Class A Beneficiaries and to
redeem Class A Interests (see Notes 8 and 9) and (ii) the portion used to pay
a capital distribution to the Class B Beneficiaries (see Note 11). The remainder
is expected to be used according to terms negotiated in conjunction with
settling the Class Action Lawsuit described in Note 7.

NOTE 3 - REVENUE RECOGNITION

     Rents are payable to the Trust monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the Trust
may enter primary-term, renewal or re-lease agreements which expire beyond the
Trust's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Trust's business activities as the Managing
Trustee and the Advisor would seek to sell the then-remaining equipment assets
either to the lessee or to a third party, taking into consideration the amount
of future non-cancelable rental payments associated with the attendant lease
agreements. Future minimum rents of $15,655,891 are due as follows:

<TABLE>
<S>                                                                  <C>
           For the year ending September 30, 1999                    $ 6,452,992
                                             2000                      3,022,877
                                             2001                      2,157,534
                                             2002                      2,027,510
                                             2003                      1,701,360
                                       Thereafter                        293,618
                                                                     -----------
                                            Total                    $15,655,891
                                                                     -----------
                                                                     -----------
</TABLE>

                                      6

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)

NOTE 4 - EQUIPMENT

     The following is a summary of equipment owned by the Trust at September 30,
1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from September 30, 1998 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of Equis Financial Group Limited Partnership ("EFG"), the
acquisition cost of the equipment did not exceed its fair market value.

<TABLE>
<CAPTION>
                                                               Remaining
                                                              Lease Term                       Equipment
          Equipment Type                                        (Months)                        at Cost
-----------------------------------                           ----------                    --------------
<S>                                                           <C>                           <C>
Aircraft                                                           0-51                     $   47,400,169
Manufacturing                                                      3-59                         10,328,381
Locomotives                                                       21-66                          9,179,509
Computers & peripherals                                            0-15                          8,262,681
Construction & mining                                                 0                          7,557,664
Retail store fixtures                                              0-12                          7,424,969
Materials handling                                                    3                          7,097,193
Research & test                                                       1                          1,667,223
Furniture & fixtures                                                  0                            203,261
Communications                                                        9                            183,801
Tractors and heavy duty trucks                                        0                            148,079
Photocopying                                                          0                            118,652
Trailers/intermodal containers                                        0                            104,255
Energy systems                                                        0                             63,900
Medical                                                               0                              2,206
Miscellaneous                                                         0                                471
                                                                                            --------------

                                                   Total equipment cost                         99,742,414

                                               Accumulated depreciation                        (47,484,876)
                                                                                            --------------
                             Equipment, net of accumulated depreciation                     $   52,257,538
                                                                                            --------------
                                                                                            --------------
</TABLE>

     During August 1997, the Trust and another EFG sponsored investment program
exchanged certain locomotives for a proportionate interest in certain other
locomotives. The Trust's original locomotives had a cost and a net book value of
$4,819,218 and $3,151,503, respectively, and had associated indebtedness of
$1,235,989 at the time of the exchange. The replacement locomotives were
recorded at their estimated fair value of $4,574,485 and the Trust assumed
associated debt of $3,120,127. The exchange resulted in the recognition of a net
loss, for financial statement purposes, of $461,156.

     At September 30, 1998, the Trust's equipment portfolio included equipment
having a proportionate original cost of $59,273,951, representing approximately
59% of total equipment cost.

                                      7

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)


     At September 30, 1998, the cost and net book value of equipment held for
sale or re-lease was approximately $9,025,000 and $4,784,000, respectively. This
equipment includes the Trust's proportionate interest in a McDonnell Douglas
MD-82 aircraft formerly leased to Alaska Airlines, Inc. with a cost and net book
value of $7,333,098 and $4,590,909, respectively. The Managing Trustee is
currently holding discussions with a potential lessee regarding the re-lease of
this aircraft. Certain costs may be required to prepare this aircraft for
release, a portion of which may be the obligation of the former lessee. The
remainder of such costs would be incurred by the Trust and other affiliated
equipment leasing programs in proportion to their ownership interests in the
aircraft. The Managing Trustee is actively seeking the sale or re-lease of all
equipment not on lease. In addition, the summary above includes equipment being
leased on a month-to-month basis.

NOTE 5 - RELATED PARTY TRANSACTIONS

     All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees
and other costs incurred during each of the nine month periods ended September
30, 1998 and 1997, which were paid or accrued by the Trust to EFG or its
Affiliates, are as follows:

<TABLE>
<CAPTION>
                                                                       1998                      1997
                                                                  --------------             -------------
<S>                                                               <C>                        <C>
     Reimbursement of offering costs                              $           --             $     151,237
     Equipment acquisition fees                                               --                 1,121,158
     Equipment management fees                                           517,421                   505,854
     Administrative charges                                               68,058                    62,148
     Reimbursable operating expenses
          due to third parties                                           476,704                   424,838
                                                                  --------------             -------------

                                     Total                        $    1,062,183             $   2,265,235
                                                                  --------------             -------------
                                                                  --------------             -------------
</TABLE>

     All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Trust. At
September 30, 1998, the Trust was owed $734,115 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in October 1998.

     Refer to Note 8 regarding the purchase of Class B Interests by an
affiliate, Equis II Corporation and a change in ownership of the Managing
Trustee.

NOTE 6 - NOTES PAYABLE

     Notes payable at September 30, 1998 consisted of installment notes of 
$36,152,303 payable to banks and institutional lenders. The notes bear 
interest rates ranging between 6.1% and 14.46%, except for one note which 
bears a fluctuating interest rate based on LIBOR (5.59% at September 30, 
1998) plus a margin. All of the installment notes are non-recourse and are 
collateralized by the equipment and assignment of the related lease payments. 
Generally, the installment notes will be fully amortized by noncancellable 
rents. However, the Trust has balloon payment obligations of $22,704,268, 
$2,867,081 and $282,421 at the expiration of the primary lease terms related 
to an aircraft leased to Scandinavian Airlines System ("SAS"), certain rail 
equipment and its interest in an aircraft leased to Reno Air, Inc., 
respectively. On November 9, 1998, pursuant to the lease agreement, SAS gave 
the Trust notice of its intent to exercise its option to extend the term of 
the existing lease for a period of two years,

                                      8

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)


effective upon the expiration of the primary lease term. The Managing
Trustee is currently negotiating the terms of the extension with SAS and no
agreement has been executed to date. As a result of SAS exercising the renewal
lease option, the balloon payment would be postponed until the termination of
the two-year extension period and would be equal to the unamortized balance of
this indebtedness at such date. The carrying amount of notes payable
approximates fair value at September 30, 1998.

     The annual maturities of the notes payable are as follows:

<TABLE>
<S>                                                             <C>
           For the year ending September 30, 1999               $25,447,064
                                             2000                 5,088,563
                                             2001                 1,730,036
                                             2002                 1,745,058
                                             2003                 1,855,243
                                       Thereafter                   286,339
                                                                -----------
                                            Total               $36,152,303
                                                                -----------
                                                                -----------
</TABLE>

NOTE 7 - LEGAL PROCEEDINGS

     On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a
class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, as defendants (collectively, the
"Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed
an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."

     The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.

     On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth the terms pursuant to which a settlement
of the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was based upon and supersedes a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998. On August 20, 1998, the Court issued its
"Order Preliminarily Approving Settlement, Conditionally Certifying Settlement
Class and Providing for Notice of, and Hearing on, the Proposed Settlement".

     The Stipulation of Settlement prescribes certain conditions necessary to 
effecting the settlement and contemplates various changes that, if effected, 
would alter the future operations of the Nominal Defendants (see Note 10). 
The Stipulation of Settlement is subject to change pending a final ruling by 
the Court that will be preceded by a hearing open to all interested parties. 
The Court has scheduled a hearing date for December 11,

                                      9

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)


1998. Currently, it is anticipated that a request for extension will be filed 
with the Court to permit, among other things, sufficient time to complete 
certain regulatory review requirements. Class members will be notified of the 
final hearing date in advance. To the extent that the Court issues a final 
order with respect to the Stipulation of Settlement, the complete terms 
thereof will be communicated to all of the beneficiaries (or partners) of the 
Nominal Defendants.

     There can be no assurance that the Court will issue a final order approving
the Stipulation of Settlement. However, the Managing Trustee and its affiliates,
in consultation with counsel, concur that there is a reasonable basis to believe
that a final settlement will be achieved. However, in the absence of a final
settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. The Managing Trustee
and its affiliates cannot predict with any degree of certainty the ultimate
outcome of such litigation.

     On July 27, 1995, EFG, on behalf of the Trust and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Trust, National Steel
Corporation ("National Steel"), under a certain Master Lease Agreement ("MLA")
for the lease of certain equipment. EFG is seeking the reimbursement by National
Steel of certain sales and/or use taxes paid to the State of Illinois and other
remedies provided by the MLA. On August 30, 1995, National Steel filed a Notice
of Removal which removed the case to the United States District Court, District
of Massachusetts. On September 7, 1995, National Steel filed its Answer to EFG's
Complaint along with Affirmative Defenses and Counterclaims, seeking declaratory
relief and alleging breach of contract, implied covenant of good faith and fair
dealing and specific performance. EFG filed its Answer to these counterclaims on
September 29, 1995. Though the parties discussed settlement with respect to this
matter for some time, the negotiations were unsuccessful. Notwithstanding these
discussions, EFG filed an Amended and Supplemental Complaint alleging further
default under the MLA and EFG filed a motion for Summary Judgment on all claims
and counterclaims. The Court held a hearing on EFG's motion in December 1997 and
the Court recently entered a decision dismissing certain of National Steel's
counterclaims and finding in favor of EFG on certain issues and in favor of
National Steel on other issues. The parties have since resumed settlement
discussions. The Trust does not anticipate that it will experience any material
losses as a result of this action.

NOTE 8 - ISSUANCE OF CLASS B INTERESTS

     On October 26, 1996, the Trust filed a Solicitation Statement with the
United States Securities and Exchange Commission (the "SEC") which subsequently
was sent to the Beneficiaries pursuant to Regulation 14A of Section 14 of the
Securities Exchange Act. The Solicitation Statement sought the consent of the
Beneficiaries to a proposed amendment (the "Amendment") to the Amended and
Restated Declaration of Trust (the "Trust Agreement") which would (i) amend the
provisions of the Trust Agreement governing the redemption of Beneficiary
Interests to permit the Trust to offer to redeem outstanding Beneficiary
Interests at such times, in such amounts, in such manner and at such prices as
the Managing Trustee might determine from time to time, in accordance with
applicable law; and (ii) add a provision to the Trust Agreement that would
permit the Trust to issue, at the discretion of the Managing Trustee and without
further consent or approval of the Beneficiaries, an additional class of
security with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as the Managing Trustee
might affix. The funds obtained through the issuance of such a security were
intended to be used by the Trust to (a) expand redemption opportunities for
Beneficiaries without using Trust funds which might otherwise be available for
cash distributions; and (b) make a special one-time cash distribution to the
Beneficiaries.

                                      10

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)


     Pursuant to the Trust Agreement, the adoption of the Amendment required the
consent of the Beneficiaries holding more than 50% in the aggregate of the Class
A Interests held by all Beneficiaries. A majority of the Class A Interests,
representing 1,215,771 Interests or 60.5% of all Class A Interests, voted in
favor of the Amendment; 174,315 Interests or 8.7% of all Class A Interests voted
against the Amendment; and 49,787 Interests or 2.5% of all Class A Interests
abstained. Approximately 72% of all Class A Interests participated in the vote.
Accordingly, the Amendment was adopted.

     On February 12, 1997, the Trust filed a Registration Statement on Form S-1
with the SEC, which became effective June 10, 1997. The Registration Statement
covered the issuance and sale of a new class of beneficiary interests in the
Trust (the "Class B Interests"). The characteristics of the Class B Interests,
associated risk factors and other matters of importance to the Beneficiaries and
purchasers of the Class B Interests were set forth in a Prospectus sent to the
Beneficiaries. On July 17, 1997, the offering closed and on July 18, 1997 the
Trust issued 3,024,740 Class B Interests at $5.00 per interest, thereby
generating $15,123,700 in aggregate Class B capital contributions. Class A
Beneficiaries purchased 5,520 Class B Interests, generating $27,600 of aggregate
capital contributions, and the Special Beneficiary, EFG, purchased 3,019,220
Class B Interests, generating $15,096,100 of such aggregate capital
contributions. The Trust incurred offering costs in the amount of $151,237 and
professional service costs of $153,842 in connection with this offering.

     Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of the majority of all of the Trust's outstanding
voting interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.

     As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $2,960,865 to the Class A Beneficiaries on August 15, 1997.

NOTE 9 - REDEMPTION OF CLASS A INTERESTS

     On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Interests of the Trust by filing a Form 13E-4, Issuer
Tender Offer Statement, with the SEC and distributing to the Class A
Beneficiaries information (the "Tender Documents") concerning the offer. On
October 10, 1997, the Trust used $2,291,567 of the net proceeds realized from
the issuance of the Class B Interests to purchase 218,661 of the Class A
Interests tendered as a result of the offer. The Tender Documents described,
among other things, the terms of the offer and the purchase price per Class A
Interest being offered by the Trust. On April 28, 1998, the Trust used an
additional $46,800 of such proceeds to purchase 5,200 of the remaining Class A
Interests.

NOTE 10 - SOLICITATION STATEMENT

     On May 5, 1998, the Trust filed a definitive Solicitation Statement with 
the United States Securities and Exchange Commission in connection with the 
solicitation by the Trust of the consent of the Beneficiaries to a proposed 
amendment (the "Amendment") to the Second Amended and Restated Declaration of 
Trust (the "Trust Agreement"). The Solicitation Statement and Consent of 
Beneficiary were mailed to all of the Beneficiaries of the

                                      11

<PAGE>

                             AFG Investment Trust C

                        Notes to the Financial Statements

                                   (Continued)


Trust on May 6, 1998. The Beneficiaries were requested to use the Consent of 
Beneficiary to vote on seven proposals and return their votes on or before 
June 5, 1998. Equis II Corporation, which has voting control of the Trust, 
agreed to vote all of its Class B Interests in the same manner in which the 
majority of the Class A Interests were actually voted. Accordingly, the 
Amendment would be adopted or rejected based upon the voting results of the 
majority of Class A Interests that were actually voted (including 9,210 Class 
A Interests owned by affiliates of EFG), regardless of how few Class A 
Interests were actually voted.

     The results of the voting reflect that a majority of Class A Interests
voted in favor of each of the proposals. Therefore, the Trust Agreement was
amended to (i) broaden the Trust's stated investment policies and objectives and
permit the Trust to invest in assets other than leased equipment and (ii) modify
the Trust's financing provisions to eliminate any cap on the amount of aggregate
Trust indebtedness and permit the Trust to use cross-collateralized and other
recourse debt structures.

     In addition, subject to attaining a settlement in the Class Action Lawsuit
described in Note 7 herein, the Trust Agreement will be modified in the
following principal respects: (i) the Trust will pay a Special Cash Distribution
to the Class A Beneficiaries of record as of September 1, 1997, or to their
successors or assigns, totaling $1,513,639 (or approximately $0.75 per Class A
Beneficiary Interest) using a portion of the Class B capital contributions that
otherwise would be distributed as a Class B Capital Distribution to Equis II
Corporation, the parent company of the Managing Trustee and an affiliate of EFG;
(ii) Equis II Corporation will be required to reduce its prospective Class B
Capital Distributions by $3,405,688 and treat such amount as a long-term equity
investment in the Trust; (iii) certain voting restrictions will be placed upon
the Class B Interests owned by Equis II Corporation; (iv) the Trust's
reinvestment period, which originally expired on September 2, 1997, will be
reinstated until December 31, 2002; and (v) acquisition fees paid to EFG in
connection with reinvestment assets acquired after the Amendment date will be
reduced from a maximum of 3% to 1% and management fees earned in connection with
such assets will be reduced from a maximum of 5% to 2%.

NOTE 11 - CLASS B CAPITAL DISTRIBUTION

     The Managing Trustee and certain of its affiliates were named as defendants
in the Class Action Lawsuit discussed in Note 7 herein. In connection with this
litigation and subject to a settlement being effected, the Managing Trustee has
agreed to adopt certain modifications to the Trust Agreement as described in the
Solicitation Statement referred to in Note 10 herein. One aspect of the proposed
settlement would result in using of a portion of Equis II Corporation's Class B
Capital Contribution to the Trust to (i) pay a second special cash distribution
to Class A Beneficiaries totaling $1,513,639, approximately $.75 per Class A
Interest, and (ii) invest $3,405,688 in the Trust's long-term business
activities. The remainder of the Class B Capital Contributions (not otherwise
used to repurchase Class A Interests in the Tender Offer closed on October 10,
1997 or to pay for offering and related costs associated with the Class B
Interests or to pay the first special cash distribution), $4,646,862 in total,
was returned to Equis II Corporation and the other third-party Class B capital
contributors on July 6, 1998.

                                      12

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION


Item 2.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations.

     Certain statements in this quarterly report of AFG Investment Trust C 
(the "Trust") that are not historical fact constitute "forward-looking 
statements" within the meaning of the Private Securities Litigation Reform 
Act of 1995 and are subject to a variety of risks and uncertainties. There 
are a number of important factors that could cause actual results to differ 
materially from those expressed in any forward-looking statements made 
herein. These factors include, but are not limited to, the outcome of the 
Class Action Lawsuit described in Note 7 to the accompanying financial 
statements, and the ability of Equis Financial Group Limited Partnership 
(formerly American Finance Group) ("EFG") to collect all rents due under the 
attendant lease agreements and to successfully remarket the Trust's 
equipment, upon the expiration of such leases.

Year 2000 Issue

     The Year 2000 Issue generally refers to the capacity of computer 
programming logic to correctly identify the calendar year. Many companies 
utilize computer programs or hardware with date sensitive software or 
embedded chips that could interpret dates ending in "00" as the year 1900 
rather than the year 2000. In certain cases, such errors could result in 
system failures or miscalculations that disrupt the operations of the 
affected businesses. The Trust uses information systems provided by EFG and 
has no information systems of its own. EFG has adopted a plan to address the 
Year 2000 Issue that consists of four phases: assessment, remediation, 
testing, and implementation and has elected to utilize principally internal 
resources to perform all phases. Presently, EFG anticipates completing its 
Year 2000 project by December 31, 1998 at a di minimus cost to the Trust. 
Aggregate costs for the entire project are anticipated to be less than 
$50,000, all of which will have been expensed as incurred.

     EFG's primary information software was coded by IBM at the point of 
original design to use a four-digit field to identify calendar year. All of 
the Trust's lease billings, cash receipts and equipment remarketing processes 
are performed using this proprietary software. In addition, EFG has gathered 
information about the Year 2000 readiness of significant vendors and third 
party servicers and continues to monitor developments in this area. All of 
EFG's peripheral computer technologies, such as its network operating system 
and third-party software applications, including payroll, depreciation 
processing, and electronic banking, have been evaluated for potential 
programming changes and are expected to require only minor modifications to 
function properly with respect to dates in the year 2000 and thereafter. 
Moreover, EFG understands that each of its and the Trust's significant 
vendors and third-party servicers are in the process, or have completed the 
process, of making their systems Year 2000 compliant. Substantially all 
parties queried have indicated that their systems will be Year 2000 compliant 
by the end of 1998. Presently, EFG is not aware of any outside customer with 
a Year 2000 Issue that would have a material effect on the Trust's results of 
operations, liquidity, or financial position. However, non-compliance on the 
part of a lessee could, under a worse case scenario, result in lost revenues 
to the Trust.

     EFG believes that its Year 2000 compliance plan will be effective in 
resolving all material Year 2000 risks in a timely manner and that the Year 
2000 Issue will not pose significant operational problems with respect to its 
computer systems or result in a system failure or disruption of its or the 
Trust's business operations. However, EFG has no means of ensuring that all 
customers, vendors and third-party servicers will conform ultimately to Year 
2000 standards. The effect of this risk to the Trust is not determinable.


                                13

<PAGE>


                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

Three and nine months ended September 30, 1998 compared to the three and nine 
months ended September 30, 1997:

Overview

     As an equipment leasing trust, the Trust was organized to acquire a 
diversified portfolio of capital equipment subject to lease agreements with 
third parties. The Trust was designed to progress through three principal 
phases: acquisitions, operations, and liquidation. During the operations 
phase, a period of approximately six years, all equipment in the Trust's 
portfolio will progress through various stages. Initially, all equipment will 
generate rental revenues under primary term lease agreements. During the life 
of the Trust, these agreements will expire on an intermittent basis and 
equipment held pursuant to the related leases will be renewed, re-leased or 
sold, depending on prevailing market conditions and the assessment of such 
conditions by EFG to obtain the most advantageous economic benefit. Over 
time, a greater portion of the Trust's original equipment portfolio will 
become available for remarketing and cash generated from operations and from 
sales or refinancings will fluctuate. Presently, the Trust is a Nominal 
Defendant in a Class Action Lawsuit. The outcome of the Class Action Lawsuit 
could alter the future business operations of the Trust. See Note 7 to the 
accompanying financial statements. The Trust's operations commenced in 1992.

Results of Operations

     For the three and nine months ended September 30, 1998, the Trust 
recognized lease revenue of $3,764,697 and $11,944,029, respectively, 
compared to $3,875,875 and $11,933,449 for the same periods in 1997. The 
increase in lease revenue for the nine months ended September 30, 1998 
compared to the same period in 1997 is attributable to the acquisition of 
additional equipment in 1997 pursuant to the reinvestment provisions of the 
Amended and Restated Declaration of Trust (the "Trust Agreement"). This 
increase was partially offset by the effect of equipment sales. The level of 
lease revenue to be recognized by the Trust in the future is expected to be 
impacted by the Amendment to the Trust Agreement described in Note 8 to the 
accompanying financial statements; however the extent of such impact cannot 
be determined at this time. Over the long term, the level of lease revenue 
will decline due to the expiration of the Trust's primary lease term 
agreements.

     The Trust's equipment portfolio includes certain assets in which the 
Trust holds a proportionate ownership interest. In such cases, the remaining 
interests are owned by EFG or an affiliated equipment leasing program 
sponsored by EFG. Proportionate equipment ownership enables the Trust to 
further diversify its equipment portfolio by participating in the ownership 
of selected assets, thereby reducing the general levels of risk which could 
result from a concentration in any single equipment type, industry or lessee. 
The Trust and each affiliate individually report, in proportion to their 
respective ownership interests, their respective shares of assets, 
liabilities, revenues, and expenses associated with the equipment.

     Interest income for the three and nine months ended September 30, 1998 
was $272,239 and $831,683, respectively, compared to $321,611 and $730,878 
for the same periods in 1997. Interest income was generated from temporary 
investments of available cash in short-term money market instruments. 
Interest income in 1998 includes interest earned on unexpended proceeds from 
the issuance of Class B Interests (see below). The amount of future interest 
income is expected to fluctuate in relation to prevailing interest rates and 
the collection of lease revenue and equipment sales proceeds.

     During the three and nine months ended September 30, 1998, the Trust 
sold equipment having a net book value of $916,830 and $1,981,761, 
respectively, to existing lessees and third parties. These sales resulted in 
a 

                                14

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

net loss, for financial statement purposes, of $61,062 for the three months 
ended September 30, 1998 and a net gain, for financial statement purposes, of 
$2,004,922, for the nine months ended September 30, 1998.

     During the three and nine months ended September 30, 1997, the Trust 
sold equipment having a net book value of $194,100 and $674,486, 
respectively, to existing lessees and third parties. These sales resulted in 
a net loss of $105,969 and a net gain of $104,334, for financial statement 
purposes, for the three and nine months, respectively, ended September 30, 
1997. In addition, during August 1997, the Trust and another EFG-sponsored 
investment program exchanged certain locomotives for a proportionate interest 
in certain other locomotives. The Trust's original locomotives had a cost and 
net book value of $4,819,218 and $3,151,503, respectively, and had associated 
indebtedness of $1,235,989 at the time of the exchange. The replacement 
locomotives were recorded at their estimated fair value of $4,574,485 and the 
Trust assumed associated debt of $3,120,127. The exchange resulted in the 
recognition of a net loss, for financial statement purposes, of $461,156.

     It cannot be determined whether future sales of equipment will result in 
a net gain or net loss to the Trust, as such transactions will be dependent 
upon the condition and type of equipment being sold and its marketability at 
the time of sale. In addition, the amount of gain or loss reported for 
financial statement purposes is partly a function of the amount of 
accumulated depreciation associated with the equipment being sold.

     The ultimate realization of residual value for any type of equipment is 
dependent upon many factors, including EFG's ability to sell and re-lease 
equipment. Changing market conditions, industry trends, technological 
advances and many other events can converge to enhance or detract from asset 
values at any given time. EFG attempts to monitor these changes in order to 
identify opportunities which may be advantageous to the Trust and to maximize 
total cash returns for each asset.

     The total economic value realized upon final disposition of each asset 
is comprised of all primary lease term revenue generated from that asset, 
together with its residual value. The latter consists of cash proceeds 
realized upon the asset's sale in addition to all other cash receipts 
obtained from renting the asset on a re-lease, renewal or month-to-month 
basis. The Trust classifies such residual rental payments as lease revenue. 
Consequently, the amount of gain or loss reported in the financial statements 
is not necessarily indicative of the total residual value the Trust achieved 
from leasing the equipment.

     Depreciation and amortization expense for the three and nine months 
ended September 30, 1998 was $2,121,864 and $7,663,488, respectively, 
compared to $3,276,517 and $9,710,932 for the same periods in 1997. For 
financial reporting purposes, to the extent that an asset is held on primary 
lease term, the Trust depreciates the difference between (i) the cost of the 
asset and (ii) the estimated residual value of the asset on a straight-line 
basis over such term. For purposes of this policy, estimated residual values 
represent estimates of equipment values at the date of primary lease 
expiration. To the extent that an asset is held beyond its primary lease 
term, the Trust continues to depreciate the remaining net book value of the 
asset on a straight-line basis over the asset's remaining economic life.

     Interest expense was $750,573 and $2,370,131, or 19.9% and 19.8% of 
lease revenue, for the three and nine months ended September 30, 1998, 
respectively, compared to $284,830 and $886,502, or 7.3% and 7.4% of lease 
revenue, for the same periods in 1997. Interest expense increased due to 
additional leveraging obtained to finance the acquisition of reinvestment 
equipment during 1997. In the future, interest expense is expected to decline 
in amount as the principal balance of notes payable is reduced through the 
application of rent receipts to outstanding indebtedness.

     Management fees were 4.4% and 4.3% of lease revenue for the three and 
nine months ended September 30, 1998, respectively, compared to 4.4% and 4.2% 
of lease revenue for the same periods in 1997. Management 

                                15

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

fees are based on 5% of gross lease revenue generated by operating leases and 
2% of gross lease revenue generated by full payout leases.

     Operating expenses consist principally of administrative charges, 
professional service costs, such as audit, insurance and legal fees, as well 
as printing, distribution and remarketing expenses. Operating expenses were 
$216,975 and $544,762 for the three and nine months ended September 30, 1998, 
respectively, compared to $258,492 and $486,986 for the same periods in 1997. 
The Trust accrued $108,000 for certain legal expenses related to the Class 
Action Lawsuit described in Note 7 to the financial statements. Additionally, 
operating expenses increased from 1997 to 1998 due to professional service 
costs incurred in connection with the Solicitation Statement described in 
Note 10 to the accompanying financial statements. The amount of future 
operating expenses cannot be predicted with certainty; however, such expenses 
are usually higher during the acquisition and liquidation phases of a trust. 
Other fluctuations typically occur in relation to the volume and timing of 
remarketing activities.

Liquidity and Capital Resources and Discussion of Cash Flows

     The Trust by its nature is a limited life entity which was established 
for specific purposes described in the preceding "Overview". As an equipment 
leasing program, the Trust's principal operating activities derive from asset 
rental transactions. Accordingly, the Trust's principal source of cash from 
operations is provided by the collection of periodic rents. These cash 
inflows are used to satisfy debt service obligations associated with 
leveraged leases, and to pay management fees and operating costs. For the 
nine months ended September 30, 1998, operating activities generated net cash 
inflows of $10,371,168 compared to $11,391,360 for the same period in 1997. 
(The latter has been adjusted to reflect (i) equipment sale proceeds of 
$2,265,436 received in connection with the sale of a vessel and (ii) debt 
proceeds of $3,846,898 from leveraging certain rail equipment, both of which 
amounts were due from EFG at December 31, 1996 and reflected as cash inflows 
on the accompanying 1997 Statement of Cash Flows.) In the future, operating 
cash flows may increase due to the acquisition of reinvestment equipment. 
Subsequently, renewal, re-lease and equipment sale activities will cause the 
Trust's primary-term lease revenue and corresponding sources of operating 
cash to decline. Overall, expenses associated with rental activities, such as 
management fees, and net cash flow from operating activities will decline as 
the Trust experiences a higher frequency of remarketing events.

     The Trust's equipment is leased by a number of creditworthy, 
investment-grade companies and, to date, the Trust has not experienced any 
material collection problems and has not considered it necessary to provide 
an allowance for doubtful accounts. Notwithstanding a positive collection 
history, there is no assurance that all future contracted rents will be 
collected or that the credit quality of the Trust's lessees will be 
maintained. Collection risk could increase in the future, particularly as the 
Trust remarkets its equipment and enters re-lease agreements with different 
lessees. The Managing Trustee will continue to evaluate and monitor the 
Trust's experience in collecting accounts receivable to determine whether a 
future allowance for doubtful accounts may become appropriate.

     Ultimately, the Trust will dispose of all assets under lease. This will 
occur principally through sale transactions whereby each asset will be sold 
to the existing lessee or to a third party. Generally, this will occur upon 
expiration of each asset's primary or renewal/re-lease term. In certain 
instances, casualty or early termination events may result in the disposal of 
an asset. Such circumstances are infrequent and usually result in the 
collection of stipulated cash settlements pursuant to terms and conditions 
contained in the underlying lease agreements.

     Cash expended for equipment acquisitions and cash realized from asset 
disposal transactions are reported under investing activities on the 
accompanying Statement of Cash Flows. The Trust expended $38,887,683 during 
the nine months ended September 30, 1997, to acquire equipment pursuant to 
the reinvestment provisions

                                16

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

of the Trust Agreement. The 1997 purchases included the acquisition of a 
50.6% ownership interest in an aircraft (the "SAS Aircraft") at an aggregate 
cost to the Trust of $30,895,171 and an equipment basis adjustment of 
$1,884,138 related to the lease exchange described in Note 4 to the 
accompanying financial statements. To acquire the interest in the SAS 
Aircraft, the Trust obtained long-term financing of $25,654,667 from a third 
party lender and utilized cash of $5,240,504. There were no equipment 
acquisitions during the corresponding period in 1998. During the nine months 
ended September 30, 1998, the Trust realized net sale proceeds of $3,986,683 
compared to $778,820 for the same period in 1997. Future inflows of cash from 
asset disposals will vary in timing and amount and will be influenced by many 
factors including, but not limited to, the frequency and timing of lease 
expirations, the type of equipment being sold, its condition and age, and 
future market conditions.

     The Trust obtained long-term financing in connection with certain 
equipment leases. The repayments of principal related to such indebtedness 
are reported as a component of financing activities. Each note payable is 
recourse only to the specific equipment financed and to the minimum rental 
payments contracted to be received during the debt amortization period (which 
period generally coincides with the lease rental term). As rental payments 
are collected, a portion or all of the rental payment is used to repay the 
associated indebtedness. In the near-term, the amount of cash used to repay 
debt obligations is scheduled to increase as a result of leveraging obtained 
in connection with the acquisition of reinvestment equipment. Thereafter, the 
amount will decline as the principal balance of notes payable is reduced 
through the collection and application of rents. However, the Trust has 
balloon payment obligations of $22,704,268, $2,867,081 and $282,421 at the 
expiration of the primary lease terms related to the Trust's proportionate 
ownership interest in a Boeing 767-300 ER aircraft leased to Scandinavian 
Airlines System ("SAS"), certain rail equipment and an aircraft leased to 
Reno Air, Inc., respectively.

     On November 9, 1998, pursuant to the lease agreement, SAS gave the Trust 
notice of its intent to exercise its option to extend the term of the 
existing lease for a period of two years, effective upon the expiration of 
the primary lease term. The Managing Trustee is currently negotiating the 
terms of the extension with SAS and no agreement has been executed to date. 
As a result of SAS exercising the renewal lease option, the balloon payment 
would be postponed until the termination of the two-year extension period and 
would be equal to the unamortized balance of this indebtedness at such date.

     In accordance with the Trust Agreement, upon the dissolution of the 
Trust, the Managing Trustee will be required to contribute to the Trust an 
amount equal to any negative balance which may exist in the Managing 
Trustee's tax capital account. At December 31, 1997, the Managing Trustee had 
a negative tax capital account balance of $4,832.

     At September 30, 1998, the Trust had aggregate future minimum lease 
payments of $15,655,891 from contractual lease agreements (see Note 3 to the 
financial statements), a portion of which will be used to amortize the 
principal balance of notes payable of $36,152,303 (see Note 6 to the 
financial statements and discussion above). Additional cash inflows will be 
realized from future remarketing activities, such as lease renewals and 
equipment sales, the timing and extent of which cannot be predicted with 
certainty. This is because the timing and extent of equipment sales is often 
dependent upon the needs and interests of the existing lessees. Some lessees 
may choose to renew their lease contracts, while others may elect to return 
the equipment. In the latter instances, the equipment could be re-leased to 
another lessee or sold to a third party. Accordingly, as the Trust matures 
and a greater level of its equipment assets becomes available for 
remarketing, the cash flows of the Trust will become less predictable. In 
addition, the Trust will have cash outflows to satisfy interest on 
indebtedness and to pay management fees and operating expenses. Ultimately, 
the Trust is expected to meet its future disbursement obligations and to 
distribute any excess of cash inflows over cash outflows to the Participants 
in accordance with the Trust Agreement. However, several factors, including 
month-to-month lease extensions, lessee defaults, equipment casualty events, 
and early lease terminations could alter the Trust's anticipated cash flows 
as described herein and in the accompanying financial statements and result 
in fluctuations to the Trust's periodic cash distribution payments.

                                17

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

     On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00 
per interest, thereby generating $15,123,700 in aggregate Class B capital 
contributions. Class A Beneficiaries purchased 5,520 Class B Interests, 
generating $27,600 of such aggregate capital contributions, and the Special 
Beneficiary, EFG, purchased 3,019,220 Class B Interests, generating 
$15,096,100 of such aggregate capital contributions. The Trust incurred 
offering costs in the amount of $151,237 and professional service costs of 
$153,842 in connection with this offering. Subsequently, EFG transferred its 
Class B Interests to a special-purpose company, Equis II Corporation, a 
Delaware corporation. EFG also transferred its ownership of AFG ASIT 
Corporation, the Managing Trustee of the Trust, to Equis II Corporation. As a 
result, Equis II Corporation has voting control of the Trust through its 
ownership of the majority of the Trust's outstanding voting interests, as 
well as its ownership of AFG ASIT Corporation. Equis II Corporation is 
controlled by EFG's President and Chief Executive Officer, Gary D. Engle. 
Accordingly, control of the Managing Trustee did not change as a result of 
the foregoing transactions (see also Note 8 to the accompanying financial 
statements).

     As described in the Prospectus for the offering of the Class B 
Interests, the Managing Trustee used a portion of the net cash proceeds 
realized from the offering of the Class B Interests to pay a one-time special 
cash distribution of approximately $1.47 per Class A Interest to the Class A 
Beneficiaries of the Trust. The Managing Trustee declared and paid this 
special cash distribution, aggregating $2,960,865, to Class A Beneficiaries 
on August 15, 1997.

     On August 7, 1997, the Trust commenced an offer to purchase up to 45% of 
the outstanding Class A Beneficiary Interests of the Trust. On October 10, 
1997, the Trust used $2,291,567 of the net proceeds realized from the 
issuance of the Class B Interests to purchase 218,661 of the Class A 
Interests tendered as a result of the offer. On April 28, 1998, the Trust 
used an additional $46,800 of such proceeds to purchase 5,200 of the 
remaining Class A Interests. On July 6, 1998, the Trust used $4,646,862 of 
such proceeds to pay a capital distribution to the Class B Beneficiaries. The 
remaining net proceeds from the Class B offering of $4,872,527 will be used 
according to terms negotiated in connection with settling the Class Action 
Lawsuit described in Note 7 (see also Notes 9, 10 and 11 to the accompanying 
financial statements).

     Cash distributions paid to the Participants consist of both a return of 
and a return on capital. Cash distributions do not represent and are not 
indicative of yield on investment. Actual yield on investment cannot be 
determined with any certainty until conclusion of the Trust and will be 
dependent upon the collection of all future contracted rents, the generation 
of renewal and/or re-lease rents, and the residual value realized for each 
asset at its disposal date. Future market conditions, technological changes, 
the ability of EFG to manage and remarket the assets, and many other events 
and circumstances, could enhance or detract from individual asset yields and 
the collective performance of the Trust's equipment portfolio.

     It is the intention of the Managing Trustee to maintain a cash 
distribution level that is consistent with the operating cash flows of the 
Trust and to optimize the long-term value of the Trust. A distribution level 
that is higher than the Trust's operating cash flows could compromise the 
Trust's working capital position, as well as its ability to refurbish or 
upgrade equipment in response to lessee requirements or other market 
circumstances. Accordingly, in order to better align monthly cash 
distributions with the Trust's operating cash flows, the Managing Trustee 
reduced the level of monthly cash distributions from an annualized rate of 
$2.52 per Class A Interest (the rate established and paid from the Trust's 
inception through September 1995) to an annualized rate of $1.26 per Class A 
Interest commencing in October 1995. In October 1996, the Managing Trustee 
increased the annualized distribution rate to $1.64 per Class A Interest and 
has sustained this distribution rate through the nine months ended September 
30, 1998. For the Class B Beneficiaries, the Managing Trustee established and 
paid, from the

                                18

<PAGE>

                             AFG Investment Trust C

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION

Trust, an annualized distribution of $0.66 per Class B Interest commencing 
July 18, 1997. Future distributions, with respect to Class B Interests, will 
be subordinate to certain distributions with respect to Class A Interests.

     Cash distributions to the Managing Trustee, the Special Beneficiary, and 
the Beneficiaries are declared and generally paid within fifteen days 
following the end of each month. The payment of such distributions is 
presented as a component of financing activities. For the nine months ended 
September 30, 1998, the Trust declared total cash distributions of 
$8,553,208. The Beneficiaries were allocated $8,191,871 ($2,197,647 for Class 
A Beneficiaries and $5,994,224 for Class B Beneficiaries); the Special 
Beneficiary was allocated $322,274; and the Managing Trustee was allocated 
$39,063.

     The nature of the Trust's principal cash flows gradually will shift from 
rental receipts to equipment sale proceeds as the Trust matures. As this 
occurs, the Trust's cash flows will become more volatile in that certain of 
the Trust's equipment leases will be renewed and certain of its assets will 
be sold. In some cases, the Trust may be required to expend funds to 
refurbish or otherwise improve the equipment being remarketed in order to 
make it more desirable to a potential lessee or purchaser. The Trust's 
Advisor, EFG, and the Managing Trustee will attempt to monitor and manage 
these events to maximize the residual value of the Trust's equipment and will 
consider these factors, in addition to the collection of contractual rents, 
the retirement of scheduled indebtedness and the Trust's future working 
capital and equipment requirements, in establishing future cash distribution 
rates. Ultimately, the Beneficiaries should expect that cash distribution 
rates will fluctuate over the long term as a result of future remarketing 
activities.

                             19


<PAGE>


                             AFG Investment Trust C

                                    FORM 10-Q

                           PART II. OTHER INFORMATION



    Item 1.             Legal Proceedings
                        Response:

                        Refer to Note 7 to the financial
                        statements herein.

    Item 2.             Changes in Securities
                        Response:  None

    Item 3.             Defaults upon Senior Securities
                        Response:  None

    Item 4.             Submission of Matters to a Vote of Security Holders
                        Response:  None

    Item 5.             Other Information
                        Response:  None

    Item 6(a).          Exhibits
                        Response:  None

    Item 6(b).          Reports on Form 8-K
                        Response:  None


                                   20

<PAGE>

                                 SIGNATURE PAGE

     Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below on behalf of the registrant and in the 
capacity and on the date indicated.

                             AFG Investment Trust C

           By:      AFG ASIT Corporation, a Massachusetts
                    corporation and the Managing Trustee of
                    the Registrant.


           By:      /s/ Michael J. Butterfield
                    ---------------------------------------
                    Michael J. Butterfield
                    Treasurer of AFG ASIT Corporation
                    (Duly Authorized Officer and
                    Principal Accounting Officer)


           Date:    November 13, 1998
                    ---------------------------------------



           By:      /s/ Gary M. Romano
                    ---------------------------------------
                    Gary M. Romano
                    Clerk of AFG ASIT Corporation
                    (Duly Authorized Officer and
                    Principal Financial Officer)


           Date:    November 13, 1998
                    ---------------------------------------



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